Jargon Jungle: All at sea with the Blue Ocean Strategy?

The question: “Can you give some examples of blue ocean thinking, specific to you?” may get you a firing. Don’t be surprised if it comes from a top honcho of a bank that is swimming in the ‘red ocean’. A red ocean, in this case, comprises a market place crowded with other banks with almost identical vital statistics, such as Net Interest Margins (NIM) or Non Performing Assets (NPA).

In another instance, if you are employed at a VC fund, it so may happen that on a given day, your former classmate may be sitting across the table pitching his business idea to you. He will tell you: “Our big idea is to weed out all intermediaries between people seeking loans and those offering them. We are leveraging social networks to assist us in this match-making process. We can knock off several percentage points off the interest margin on loans benefitting both sides. It is a Blue Ocean strategy because no one else is doing it. A situation in which there is no competition.”

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To qualify as ‘true blue’ thinking, the following conditions apply:

– There is no competition.

– There is no demand.

– There are ample opportunities for growth and profits.

– You are offering something different and at a lower cost.

One may ask, how can there be opportunities for growth without demand? Therein lies the conundrum.

In a competitive marketplace, several firms are in a bid to outdo each other, like a race. Here, demand exists for similar products or services. The key is to move away from ‘similar’ offerings.

In the personal transportation market, cars compete with each other – a ‘red ocean’, or marketplace, is a platform for price and “me-too-feature” wars. Let us say that you offer personal transportation service without people needing to own cars. You are in competition with yellow/black taxis or hired cars -another ‘red ocean’. But if you take advantage of location services through smartphones and let drivers and passengers match each other’s needs in real time, you are bringing convenience (taxi hailing) and lower costs to give you an edge. It is a ‘blue ocean’ idea until other firms jump in with similar offerings. A chief reason for the early success of Uber is that it created and operated in a blue ocean of its own; and created its own market.

Another method is to address the needs of non-customers. The MOOC (Massively Online Open Courses) phenomenon is one example. It has attracted people who wouldn’t have considered getting into university due to costs, lack of access, loss of earnings, or embarrassment of having to sit with much younger students.

Universities have to consider the impact of such non-traditional channels of education.

It is difficult for a firm to stay in the ‘blue ocean’ phase all the time. The advice given by the writers in the book Blue Ocean Strategy by W Chan Kim and Renee Mauborgne should be dealt with prudence.

In the book, Kim and Mauborgne argue that businesses should focus less on their competitors and more on alternatives.They also should focus less on their customers, and more on non-customers, or potential new customers, thereby creating their own market or demand.

Uber and others soon had to start listening to customers, suppliers (drivers) and even regulatory authorities. Since they are now in the ‘red ocean’, a marketplace flooded with the likes of itself.

Firms which are born from innovation find it difficult to compete when competition crops up, like in the case of Uber. If the blue oceans are uncharted, the red oceans are full of sharks. The converse is true as well – firms operating in red oceans find it difficult innovate and to find their own blue oceans.

Like other strategy frameworks, the blue ocean strategy does not provide permanent answers. It is best to hence rely on basic principles and think well.